What is 'Financial Inclusion' ?
"Financial inclusion is delivery of banking services at an affordable cost ('no frills' accounts,) to the vast sections of disadvantaged and low income group. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. As banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of the public policy."

Areas of concern by banks

The banking industry has shown
tremendous growth in volume and complexity during the last few decades.

Despite making significant improvements
in all the areas relating to financial viability, profitability and
competitiveness, there are concerns that banks have not been able to reach and
bring vast segment of the population, especially the underprivileged sections
of the society, into the fold of basic banking services.

Internationally also efforts are being made to study the causes of financial exclusion and design strategies to ensure financial inclusion of the poor and disadvantaged.

The reasons may vary from country to country and so
also the strategy but all out efforts are needed as financial inclusion can
truly lift the standard of life of the poor and the disadvantaged.

RBI's Policy on 'Financial Inclusion' :

When bankers do not give the desired
attention to certain areas, the regulators have to step in to remedy the
situation. This is the reason why the Reserve Bank of India places a lot of
emphasis on financial inclusion.

With a view to enhancing the financial inclusion, as a proactive measure, the RBI in its Annual Policy Statement of the year 2005-2006, while recognizing the concerns in regard to the banking practices that tend to exclude rather than attract vast sections of population, urged banks to review their existing practices to align them with the objective of financial inclusion.

No-Frills' Account :

In the Mid Term Review of the Policy
(2005-06), RBI exhorted the banks, with a view to achieving greater
financial inclusion, to make available a basic banking 'no frills' account
either with 'NIL' or very minimum balances as well as charges that would
make such accounts accessible to vast sections of the population. The nature
and number of transactions in such accounts would be restricted and made
known to customers in advance in a transparent manner. All banks are urged
to give wide publicity to the facility of such 'no frills' account, so as to
ensure greater financial inclusion.

'Simplification of 'Know Your Customer (KYC)' Norms :

Banks are required to provide a choice
of a 'no frills account' where the minimum balance is nil or very small but
having restrictions on number of withdrawals, etc., to facilitate easy
access to bank accounts.

Further, in order to ensure that
persons belonging to low income group both in urban and rural areas do not
face difficulty in opening the bank accounts due to the procedural hassles,
the 'KYC' procedure for opening accounts for those persons who intend to
keep balances not exceeding rupees fifty thousand (Rs. 50,000/-) in all
their accounts taken together and the total credit in all the accounts taken
together is not expected to exceed rupees one lakh (Rs. 1,00,000/-) in a
year has been simplified to enable those belonging to low income groups
without documents of identity and proof of residence to open banks accounts.
In such cases banks can take introduction from an account holder on whom
full KYC procedure has been completed and has had satisfactory transactions
with the bank for at least six months. Photograph of the customer who
proposes to open the account and his address need to be certified by the
introducer.

Ensuring reasonableness of bank charges :

As the Reserve Bank has been receiving
several representations from public about unreasonable service charges being
levied by banks, the existing institutional mechanism in this regard is not
adequate. Accordingly, and in order to ensure fair practices in banking
services, the RBI has issued instructions to banks making it obligatory for
them to display and continue to keep updated, in their offices/branches as
also in their website, the details of various services charges in a format
prescribed by it. The Reserve Bank has also decided to place details
relating to service charges of individual banks for the most common services
in its website